Legislature(2001 - 2002)

03/26/2002 09:19 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                          March 26, 2002                                                                                      
                              9:19 AM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-02 # 42,  Side A                                                                                                            
SFC 02 # 42,  Side B                                                                                                            
SFC 02 # 43,  Side A                                                                                                            
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Pete  Kelly convened the meeting at approximately  9:19 AM.                                                            
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Dave Donley, Co-Chair                                                                                                   
Senator Jerry Ward, Vice Chair                                                                                                  
Senator Lyda Green                                                                                                              
Senator Gary  Wilken                                                                                                            
Senator Alan Austerman                                                                                                          
Senator Loren  Leman                                                                                                            
Senator Donny  Olson                                                                                                            
                                                                                                                                
Also  Attending:  SENATOR  JOHN  TORGERSON;  SENATOR  ROBIN  TAYLOR;                                                          
SENATOR GENE THERRIAULT;  GREGG MALONEY, Special Education, Division                                                            
of Teaching and Learning  Support, Department of Education and Early                                                            
Development;  BOB LABBE, Director,  Division of Medical Assistance,                                                             
Department  of Health  and Social  Services;  DAN EASTON,  Director,                                                            
Division  of  Facility  Construction   & Operation,   Department  of                                                            
Environmental  Conservation; BRAD  PIERCE, Senior Economist,  Office                                                            
of Management & Budget, Office of the Governor                                                                                  
                                                                                                                                
Attending   via  Teleconference:   From  Anchorage:  GOVERNOR   BILL                                                          
SHEFFIELD;   MARK  MYERS,  Director,   Division  of  Oil   and  Gas,                                                            
Department   of  Natural  Resources;   WILL  ABBOTT,  Commissioner,                                                             
Regulatory  Commission   of Alaska,   Department  of  Community  and                                                            
Economic Development;  From Fairbanks: ANDY WARWICK,  Chair of Board                                                            
of Directors, Fairbanks Water & Sewer, Inc                                                                                      
                                                                                                                              
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SB 345-SCHOOL SERVICES FOR DISABLED STUDENTS                                                                                    
                                                                                                                                
The Committee  heard from the sponsor,  the Department of  Education                                                            
and  Early Development,  and  the Department  of  Health and  Social                                                            
Services. The bill was moved from Committee.                                                                                    
                                                                                                                                
SB 319-SHALLOW NATURAL GAS LEASING                                                                                              
                                                                                                                                
The Committee  heard  from the  sponsor, the  Department of  Natural                                                            
Resources, and  took public testimony. One amendment  was considered                                                            
and adopted, and the bill reported from Committee.                                                                              
                                                                                                                                
SB 280-WATER/SEWER/WASTE GRANTS TO UTILITIES                                                                                    
                                                                                                                                
The  Committee   heard   from  the   sponsor,   the  Department   of                                                            
Environmental   Conservation,  the   Department  of  Community   and                                                            
Economic  Development, and  industry representatives.  The bill  was                                                            
held in Committee.                                                                                                              
                                                                                                                                
SB 111-BONDS TO FUND PORTS AND HARBORS                                                                                          
                                                                                                                                
The Committee  heard from the sponsor,  the Office of the  Governor,                                                            
and took public testimony. The bill was held in Committee.                                                                      
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 345                                                                                                        
     "An  Act  relating to  medical  assistance  for rehabilitative                                                             
     services  for certain children  with disabilities; relating  to                                                            
     agreements to pay  medical assistance for covered services paid                                                            
     for or  furnished to eligible  children with disabilities  by a                                                            
      school district; and providing for an effective date."                                                                    
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Senator Green, the sponsor  of the bill, informed the Committee this                                                            
bill would  allow school  districts to act  as vendors in  supplying                                                            
special services  to Medicaid eligible  students thereby  qualifying                                                            
for  reimbursement  from  the federal  Medicaid  program  for  those                                                            
services. She  noted the passage of this bill would  allow Alaska to                                                            
join 42 other  states already being reimbursed through  this funding                                                            
mechanism.                                                                                                                      
                                                                                                                                
Senator  Green  noted these  services  for  students  with  learning                                                            
disabilities  and  other  special  needs are  already  provided  and                                                            
expensed  in existing  school district  budgets.  She estimated  the                                                            
expected reimbursement  monies could accrue several  million dollars                                                            
for the State's  school districts and supplement their  budgets. She                                                            
stressed  that  school  districts  would  be  held  accountable  for                                                            
establishing  and maintaining  a billing process  for this  Medicaid                                                            
reimbursement program.                                                                                                          
                                                                                                                                
Senator Green  noted the accompanying  fiscal note is the  result of                                                            
the Department  of  Health and  Social  Services' need  to employ  a                                                            
program administrator  to oversee  this program. She voiced  concern                                                            
that small districts might  need assistance from larger districts to                                                            
establish  a  billing   system,  but  clarified   this  would  be  a                                                            
"voluntary"   rather  than  mandatory   program  involving   federal                                                            
receipts.                                                                                                                       
                                                                                                                                
GREGG MALONEY,  Director of Special Education, Division  of Teaching                                                            
and   Learning   Support,   Department   of  Education   and   Early                                                            
Development,  informed  the  Committee  that  school  districts  are                                                            
experiencing  increasing  operating costs,  and  the Medicaid  funds                                                            
generated  from this  program  could  "help offset"  the  increasing                                                            
expenses without requiring "significant" state resources.                                                                       
                                                                                                                                
Co-Chair Kelly  explained the proposed  reimbursement process  would                                                            
entail the  State providing  funding for  the special services  that                                                            
school  districts  provide,  the  federal   Medicaid  program  would                                                            
reimburse the  school districts for  those services, and  the school                                                            
districts would reimburse the State.                                                                                            
                                                                                                                                
Mr. Maloney  responded this  bill does not  mandate the process  Co-                                                            
Chair  Kelly  outlined;  however,  suggests  it as  an  option.  Mr.                                                            
Maloney stated  that each participating  school district  would work                                                            
with the Department to develop a plan.                                                                                          
                                                                                                                                
AT EASE 9:25 AM / 9:27 AM                                                                                                       
                                                                                                                                
BOB LABBE, Director,  Division of Medical Assistance,  Department of                                                            
Health and Social Services,  echoed Mr. Maloney's comments regarding                                                            
the bill.                                                                                                                       
                                                                                                                                
Senator Ward  mentioned that  Mr. Labbe had  previously worked  with                                                            
this Medicaid reimbursement program in Oregon.                                                                                  
                                                                                                                                
Senator  Green offered  a motion to  "move SB  345 out of  Committee                                                            
with accompanying fiscal notes and individual recommendations."                                                                 
                                                                                                                                
There being no  objections, SB 345 was REPORTED from  Committee with                                                            
a  previous $138,000  fiscal  note  dated  3/05/02 from  the  Health                                                            
Purchasing  Group, Division  of  Medical Assistance,  Department  of                                                            
Health and  Social Services,  and a new $787,000  fiscal note  dated                                                            
3/05/02  from Medicaid  Services,  Division of  Medical Assistance,                                                             
Department of Health and Social Services.                                                                                       
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 319(RES)                                                                                            
     "An Act relating to shallow natural gas leasing; and providing                                                             
     for an effective date."                                                                                                    
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
SENATOR  JOHN TORGERSON,  sponsor of  the bill,  explained that  the                                                            
original  shallow  gas leasing  program  was established  to  enable                                                            
"exploration and  production of shallow gas lease  deposits in rural                                                            
areas  to supply  energy"  to  rural  area users.  He  informed  the                                                            
Committee  the  changes proposed  in  this  bill would  "evolve  the                                                            
program  into  a more  robust  and viable  commercial  program  that                                                            
should  benefit all  parties."  He stated  the key  elements in  the                                                            
proposal include such things  as the generation of increased revenue                                                            
to the  State by raising  application fees  for shallow gas  leasing                                                            
from $500 to  $5,000 thereby keeping  the fee more in line  with the                                                            
actual  expense   of  processing   the  application;  lowering   the                                                            
Department of Natural Resources  administrative costs by instituting                                                            
automatically  renewable leases and removing "unworkable  deadlines"                                                            
for  issuance  of leases;  providing  better  reservoir management;                                                             
replacing  the 3,000 foot  depth requirement  with language  stating                                                            
that some  portion of  the field must  be within  3,000 feet  of the                                                            
surface;  increasing field  acreage  to allow for  a viable  leasing                                                            
program; removal  of the requirement  for prospective applicants  to                                                            
conduct  a  title search;  improving  protection  for  surface  land                                                            
owners; and implementing  a conversion methodology to allow existing                                                            
leases to be converted to the new program.                                                                                      
                                                                                                                                
MARK  MYERS,  Director,  Division  of Oil  and  Gas,  Department  of                                                            
Natural  Resources testified  via teleconference  from Anchorage  to                                                            
voice  the  Department's  support  of  the  bill.  He  stated  these                                                            
warranted  changes  would  convert  the program  into  a  commercial                                                            
program that would provide benefits to the State and landowners.                                                                
                                                                                                                                
JOHN  TANIGAWA,  Special   Projects  Manager,  Evergreen   Resources                                                            
Corporation, testified  via teleconference from Mat-Su in support of                                                            
SB 319 as it removes obstacles  to exploration activities. He stated                                                            
the bill is  economically sound, and  an "excellent example"  of the                                                            
State working  with industry to benefit  government, industry,  "but                                                            
particularly the public."                                                                                                       
                                                                                                                                
KEVIN TABLER,  representative, Unocal, testified via  teleconference                                                            
from Anchorage to voice  that Unocal supports the amendments to this                                                            
bill.  He asserted  that the  shallow gas-leasing  program  enhances                                                            
access to and development of the State's resources.                                                                             
                                                                                                                                
CHARLOTTE  MACCOY, representative,  Teck Cominco  Alaska,  testified                                                            
via teleconference  from Anchorage  to voice support for  this bill.                                                            
She stated  the proposed  amendments address  concerns Teck  Cominco                                                            
has regarding  bonding requirements. She alerted the  Committee that                                                            
private lands  might have been inadvertently  omitted from  proposed                                                            
language  regarding the  depth issue  change located  on page  4, in                                                            
Sections 7 and 8.                                                                                                               
                                                                                                                                
Mr. Myers shared  with the Committee that the Department  recognizes                                                            
Teck Cominco's  concerns and stated an amendment could  address both                                                            
of Teck Cominco's concerns.                                                                                                     
                                                                                                                                
Co-Chair  Kelly asked Mr.  Myers to work  with Senator Torgerson  to                                                            
develop amendment language.                                                                                                     
                                                                                                                                
The bill  was SET ASIDE.  [Note: This bill  was brought back  before                                                            
the Committee later in the meeting.]                                                                                            
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 280(RES)                                                                                            
     "An Act permitting grants to certain regulated public                                                                      
     utilities for water quality enhancement projects and water                                                                 
     supply and wastewater systems."                                                                                            
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
SENATOR GENE THERRIAULT,  sponsor of the bill, reported  that "under                                                            
current law, privately  owned public water and wastewater  utilities                                                            
are not  eligible  to participate"  in certain  State grant  funding                                                            
opportunities. He commented  this ineligibility places the privately                                                            
owned  utilities'  ratepayers at  a  disadvantage when  compared  to                                                            
ratepayers  of  municipally  owned  utilities.   He  explained  this                                                            
legislation  provides "for  inclusion of  privately-owned water  and                                                            
waste  water utilities  in  the  State water  and  wastewater  grant                                                            
program, if the Regulatory  Commission of Alaska (RCA) regulates the                                                            
rates."  He noted  that the Senate  Resources  Committee version  of                                                            
this bill "removes criteria  inserted by the Senate Labor & Commerce                                                            
Committee"  stipulating that the utility  must serve as the  primary                                                            
utility for the municipality.  He explained the Resources version of                                                            
the bill  thereby expands  the "pool"  of utilities  the bill  would                                                            
apply to.                                                                                                                       
                                                                                                                                
Senator Therriault  noted "that regulation  by the RCA ensures  that                                                            
all the  economic benefits  of these grants"  would provide  funding                                                            
for utilities'  upgrades and expansions  without forcing  ratepayers                                                            
to burden the expense.  He furthered that this bill would also allow                                                            
utilities  "to expand  in areas that  are on the  peripheral  of the                                                            
existing system, thereby  providing water and wastewater services to                                                            
families" who are currently outside of the service area.                                                                        
                                                                                                                                
Senator Therriault  noted the Resources  Committee substitute  makes                                                            
grants  available   for  public  water  and  wastewater   utilities;                                                            
however,   restricts  grants   for  solid   waste  improvements   to                                                            
municipality owned utilities.                                                                                                   
                                                                                                                                
Senator Therriault  summarized  the intent of  this bill is  to make                                                            
grant funds available to  provide Alaska's residents with safe water                                                            
and sewer regardless of  whether the water and wastewater utility is                                                            
owned by a municipality or a private group.                                                                                     
                                                                                                                                
Senator Therriault  reiterated that  the Labor & Commerce  Committee                                                            
version of  this bill is  more narrowly drafted  than the  Resources                                                            
Committee   version;  therefore,   a  zero  fiscal  note   from  the                                                            
Department  of Environmental  Conservation  accompanies the  Labor &                                                            
Commerce Committee's  version, while a $93,000 fiscal  note from the                                                            
Department accompanies the broader Resources Committee version.                                                                 
                                                                                                                                
Co-Chair  Kelly  inquired  if Senator  Therriault  agrees  with  the                                                            
analysis supporting the $93,000 fiscal note.                                                                                    
                                                                                                                                
Senator Therriault responded  the Resources Committee version allows                                                            
for a larger  pool of utilities to  qualify for the grants;  and not                                                            
all of  them have sophisticated  accounting  systems or are  sizable                                                            
entities with  a sufficient number of employees to  manage the grant                                                            
application process.  He continued that the Resources  version would                                                            
allow small utilities such  as trailer park operators, who might not                                                            
have much grant  processing expertise,  to apply for the  grants. He                                                            
commented this  might result in the  State needing to provide  staff                                                            
to assist recipients during  the grant process; therefore, he noted,                                                            
some of the fiscal note is legitimate.                                                                                          
                                                                                                                                
Senator Therriault  communicated to the Committee  that the language                                                            
of the bill  is drafted to apply to  utilities statewide,  and would                                                            
allow municipally  owned water  and waste  water utilities  that are                                                            
grappling  with privatizing  their utilities  to make that  decision                                                            
without  being  burdened  with  complying  with  the  current  grant                                                            
funding restrictions.                                                                                                           
                                                                                                                                
Senator Olson  asked why the initial grant program  excludes private                                                            
water and wastewater utilities.                                                                                                 
                                                                                                                                
Senator Therriault responded  that initially, municipalities managed                                                            
most of the systems and current scenarios were not anticipated.                                                                 
                                                                                                                                
ANDY WARWICK,  Chair, Board of Directors,  Fairbanks Water  & Sewer,                                                            
Inc., testified  via teleconference from Fairbanks,  and voiced that                                                            
Fairbanks Water  & Sewer's customers  would be "favorably"  impacted                                                            
by the passage of this bill.                                                                                                    
                                                                                                                                
Senator  Therriault  commented  that the  Regulatory  Commission  of                                                            
Alaska  (RCA) would not  permit any  grant monies  used to expand  a                                                            
facility  to  be  calculated  as  part  of the  rates  paid  by  the                                                            
utility's users.  He clarified that ratepayers could  not be charged                                                            
as if the utility  had acquired a  loan or invests private  capital;                                                            
therefore, "because  of the RCA rate regulation, the  benefit of the                                                            
grant does flow through to the individual ratepayer."                                                                           
                                                                                                                                
Senator  Green asked  if a  utility's  ratepayers  would absorb  the                                                            
costs of improvements if a grant were not in place.                                                                             
                                                                                                                                
Senator  Therriault  noted  that costs  incurred  for improvements,                                                             
upgrades,  expansions  and  the  like  would  be passed  on  to  the                                                            
ratepayers if a private or commercial loan were in place.                                                                       
                                                                                                                                
Senator  Green asked if  RCA has different  criteria considerations                                                             
for  grant   requests  from  a  municipally   owned  utility   grant                                                            
application compared to a privately owned for profit utility.                                                                   
                                                                                                                                
WILL  ABBOTT,   Commissioner,  Regulatory   Commission  of   Alaska,                                                            
Department  of Community  and Economic  Development,  testified  via                                                            
teleconference   from   Anchorage  and   responded   there  are   no                                                            
differences in the process.                                                                                                     
                                                                                                                                
Senator Green inquired  how many utilities would be affected by this                                                            
legislation.                                                                                                                    
                                                                                                                                
Senator  Therriault answered  that 36 utilities  are eligible  under                                                            
current  regulations,  with  projections  of  another  50  utilities                                                            
qualifying  under the Resources Committee  version and a  relatively                                                            
small number  of additional utilities  qualifying under the  Labor &                                                            
Commerce Committee version.                                                                                                     
                                                                                                                                
Senator  Green  asked  for  characteristics  and  locations  of  the                                                            
additional utilities.                                                                                                           
                                                                                                                                
Senator Therriault responded  that the additional 50 utilities would                                                            
include small ones such as trailer parks and some subdivisions.                                                                 
                                                                                                                                
Senator Green  requested a list of the utilities be  supplied to the                                                            
Committee.  She  asked  if an  option  for  low-interest  loans  was                                                            
considered, as  she is concerned the expansion of  the program might                                                            
compete with other statewide requests for grant funding.                                                                        
                                                                                                                                
Senator  Therriault   noted  that   other  legislation  does   allow                                                            
utilities to be eligible  for the State's low-interest loan program;                                                            
however, he  agreed that the Resources  "version of the bill  brings                                                            
in a lot of new competitors for the available grant dollars."                                                                   
                                                                                                                                
Senator  Ward asked  for clarification  that the  fiscal note  would                                                            
provide Department  support  to the fifty  new utilities that  might                                                            
apply for the grants.                                                                                                           
                                                                                                                                
Senator Therriault responded  in the affirmative, as a number of the                                                            
utilities  have never participated  in the  grant program and  would                                                            
need assistance in the application process.                                                                                     
                                                                                                                                
Senator  Ward asked  why  assisting  these utilities  in  completing                                                            
their grant  applications  would result in  the need for  additional                                                            
staff.                                                                                                                          
                                                                                                                                
Senator Therriault  responded that  in any application process,  the                                                            
Department provides assistance  to the applicants. He commented that                                                            
municipalities  that  have previously  applied  for  the grants  are                                                            
familiar with the process.                                                                                                      
                                                                                                                                
Senator  Ward  questioned  why  it  is  the  responsibility  of  the                                                            
Department to assist in helping people apply for these grants.                                                                  
                                                                                                                                
Senator Green noted that grant writing is the issue.                                                                            
                                                                                                                                
Senator  Leman  questioned  if the  owner's  equity increases  as  a                                                            
result of the  grant supported improvements, and who  is compensated                                                            
for the improvements if the utility is sold to another party.                                                                   
                                                                                                                                
Senator  Therriault responded  that if improvements  were made,  the                                                            
value  of  the  asset  would  increase;  however,   RCA regulations                                                             
guarantee that ratepayers  could not be charged for the improvements                                                            
through paying higher rates.                                                                                                    
                                                                                                                                
Senator  Therriault commented  that  the asset base  of the  utility                                                            
does increase  regardless  of whether  it is  publicly or  privately                                                            
owned. He  reiterated that  the underlying  goal is to provide  safe                                                            
water and sewer systems to Alaskans.                                                                                            
                                                                                                                                
Senator  Leman asked  if the  RCA  grant regulations  would  protect                                                            
ratepayers  from paying higher  rates to a  new owner who  purchased                                                            
the grant-improved utility.                                                                                                     
                                                                                                                                
Mr.  Abbott   clarified  that  the   increased  assets  are   called                                                            
"contributed  capital,"  and "recorded  in the  books," they  remain                                                            
there.  He  continued   that  if  the  facility  transfers   from  a                                                            
municipally  owned to  a privately  owed business,  the contributed                                                             
capital remains  on the books, and  the new owner could not  claim a                                                            
rate of return from it.                                                                                                         
                                                                                                                                
Co-Chair  Kelly  surmised  that the  contributed  capital  would  be                                                            
reflected in the sale price.                                                                                                    
                                                                                                                                
Mr. Abbot responded that would be correct.                                                                                      
                                                                                                                                
Senator  Austerman  asked for  further  clarification  of the  value                                                            
process when a  private utility sells its grant improved  utility to                                                            
another private enterprise.                                                                                                     
                                                                                                                                
Senator  Therriault stated  the assets  transfer  from one owner  to                                                            
another;  however,   any  improvements  resulting   from  grants  as                                                            
"contributed capital"  remain "on the books." He furthered  that the                                                            
new  owner would  not be  paying  for something  that  could not  be                                                            
recouped.                                                                                                                       
                                                                                                                                
Co-Chair  Kelly noted  the improvements  could be  reflected in  the                                                            
sale price of the utility,  but could not be reflected in the rates.                                                            
                                                                                                                                
Senator Austerman commented  that state grants would enable an owner                                                            
to "build  a bigger  and  better machine,"  which  would garner  the                                                            
current owner  more profit  when the utility  is sold regardless  of                                                            
the rate structure.                                                                                                             
                                                                                                                                
Co-Chair Kelly concurred,  but stressed the new owner would be aware                                                            
"that a  certain portion  of that  asset you can't  recoup costs  on                                                            
through the rate structure."                                                                                                    
                                                                                                                                
Senator  Austerman  responded  that if  a  utility is  improved  and                                                            
enlarged, it  could serve more customers  and reap more revenue  and                                                            
other benefits.                                                                                                                 
                                                                                                                                
Senator  Ward voiced  the  understanding  that these  grant  dollars                                                            
could not be used for expansion, but only for refurbishing.                                                                     
                                                                                                                                
Senator  Therriault  corrected that  the grants  could  be used  for                                                            
expansion or for refurbishment of a utility.                                                                                    
                                                                                                                                
Senator  Ward noted  that using  grant  money for  maintenance  on a                                                            
utility would "free up"  the owner's money for other expansion needs                                                            
and, in  this situation,  the expansion would  not be classified  as                                                            
contributed capital.                                                                                                            
                                                                                                                                
Mr. Abbott concurred.                                                                                                           
                                                                                                                                
Senator Ward  furthered that  if a utility  received a five  million                                                            
dollar  grant and  used those funds  for maintenance  expenses,  and                                                            
subsequently  invested  five million  dollars  of private  funds  to                                                            
expand their facility,  the expansion would be treated  as an asset.                                                            
                                                                                                                                
Again, Mr. Abbott concurred.                                                                                                    
                                                                                                                                
Senator Therriault  stated his understanding that  the dollar amount                                                            
of the grant would  be considered as contributed capital,  no matter                                                            
what it is used for, and;  therefore, could not be considered in the                                                            
rate base.                                                                                                                      
                                                                                                                                
Mr. Abbott concurred.                                                                                                           
                                                                                                                                
                                                                                                                                
SFC 02 # 42, Side B 10:07 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Senator Ward  reiterated that  if a private  utility receives  grant                                                            
money  for maintenance  needs; this  would essentially  free up  the                                                            
owner's money  for capital improvements.  He asserted that  by using                                                            
grant money in this fashion,  the owner's capital improvements would                                                            
increase the value  of the utility because those improvements  would                                                            
not be classifieds as grant capital improvements.                                                                               
                                                                                                                                
Mr. Abbott  stated that regardless  of how a grant is utilized  by a                                                            
utility the funds  are considered contributed capital  from which an                                                            
owner could  not profit.  He furthered that  the cost of  expansions                                                            
and improvements  made to the utility  using private funds  could be                                                            
recouped with rate increases.                                                                                                   
                                                                                                                                
Senator Ward  questioned if the RCA,  in its grant request  process,                                                            
reviews an entire utility's operation.                                                                                          
                                                                                                                                
Mr.  Abbott responded  that  all components  are  considered by  RCA                                                            
during the grant request process.                                                                                               
                                                                                                                                
Senator Green  questioned the previous  sale of the Fairbanks  North                                                            
Star  Borough  water and  wastewater  utility  to a  private  entity                                                            
considering that the municipally  owned utility would have qualified                                                            
for State grants.                                                                                                               
                                                                                                                                
Senator Therriault responded  that the sale of the Fairbanks utility                                                            
to a private entity  disqualified the utility from  applying for the                                                            
grants. He  opined the  Fairbanks North Star  Borough's decision  to                                                            
sell its utility "was a  smart decision" because the privately owned                                                            
group managing  the utility has upgraded  the utility and  made it a                                                            
much more  efficient  operation. He  predicted  that numerous  local                                                            
governments  would be grappling with  the decision as to  whether to                                                            
sell their water and wastewater  utilities in the upcoming years. He                                                            
questioned  if,  in  the  pursuit  of  achieving  higher  levels  of                                                            
efficiency, the  current eligibility for grants criteria  might be a                                                            
deterrent.                                                                                                                      
                                                                                                                                
Senator Green  asserted the for-profit  nature of private  ownership                                                            
would "set it apart" from  publicly owned facility where the revenue                                                            
generated   supports   the  facility   or   is  deposited   into   a                                                            
municipality's budget.                                                                                                          
                                                                                                                                
Senator  Therriault  contended  that  much  of  the  profit  in  the                                                            
Fairbanks's  utility is reinvested  in the facility; whereas  before                                                            
the municipality "siphoned  off money, quite a bit of the money." He                                                            
asserted  that the facility  "suffered" because  of that, and  under                                                            
the  current  private  ownership,  the  facility  is  becoming  more                                                            
modernized and efficient.                                                                                                       
                                                                                                                                
Senator  Austerman  applauded  the  privatization  of  the  utility;                                                            
however,  voiced concern over  a policy change  on how state  grants                                                            
would apply  to the private sector  resulting in the "potential  for                                                            
profitability"  from receiving those  grants. He cautioned  that the                                                            
Senate Resource Committee  version of the bill "opens the door quite                                                            
a bit" and may result in "opening Pandora's box."                                                                               
                                                                                                                                
Co-Chair  Kelly inquired  if Senator  Austerman  prefers the  Senate                                                            
Labor & Commerce Committee version of the bill.                                                                                 
                                                                                                                                
Senator   Austerman   stated   that   the   versions   are   similar                                                            
"philosophically."                                                                                                              
                                                                                                                                
Senator Therriault  understood the concern with expanding  the grant                                                            
applicants  beyond the eligible  original pool  and agreed  that the                                                            
Senate  Resources  Committee  substitute  does  expand  the  program                                                            
significantly,  resulting  in a sizable  fiscal note.  He noted  the                                                            
Senate   Labor  &  Commerce   committee   substitute  only   extends                                                            
eligibility to  utilities that are the primary water  and wastewater                                                            
utility servicing a community.                                                                                                  
                                                                                                                                
Senator Ward inquired as  to the number of privately owned utilities                                                            
that  would be  eligible  under provisions  in  the  Senate Labor  &                                                            
Commerce committee substitute.                                                                                                  
                                                                                                                                
DAN  EASTON,   Director,   Division  of   Facility  Construction   &                                                            
Operation, Department  of Environmental Conservation  responded that                                                            
of  the  36 municipality  utilities  the  Senate  Labor  &  Commerce                                                            
committee substitute  would apply to, only the utility  operating in                                                            
Fairbanks  is  privately-owned.   He  noted  that  the  Kake  Tribal                                                            
Corporation  currently  owns the  City  of Pelican's  water  system;                                                            
however, ownership is being transferred to the City of Pelican.                                                                 
                                                                                                                                
Senator  Ward  inquired   if  there  is  a  list  available  of  the                                                            
communities  that  would  be eligible  under  the  Senate  Resources                                                            
committee substitute of the bill.                                                                                               
                                                                                                                                
Mr. Easton  responded that  of the approximately  50 utilities  that                                                            
could be eligible  under the Senate  Resources committee  substitute                                                            
of the bill, RCA  maintains a list of the 20 currently  regulated by                                                            
RCA.                                                                                                                            
                                                                                                                                
Senator Ward  asked why the State  is obligated to supply  personnel                                                            
to help utilities  apply for these State grants as  indicated by the                                                            
fiscal  note   from  the  Department   of  Community  and   Economic                                                            
Development.                                                                                                                    
                                                                                                                                
Co-Chair  Kelly stated there  are regulations  in the Department  of                                                            
Community and Economic  Development program that obligates the State                                                            
to provide assistance to small communities.                                                                                     
                                                                                                                                
Mr. Easton elaborated that  in addition to the State assisting small                                                            
communities  with  their grant  applications,  the  majority of  the                                                            
Department's efforts  are in the actual administering  of the grant.                                                            
He explained that the Department  does not disperse grant funds in a                                                            
lump  sum,   but  rather  reimburses   the  grantee  as   a  project                                                            
progresses.  He continued that  ten percent  of the grant funds  are                                                            
withheld  until a project  is finished,  and the  State completes  a                                                            
final audit on the project.                                                                                                     
                                                                                                                                
Senator Ward asked  the witnesses if the majority  of the funding in                                                            
fiscal note accompanying  the Senate Resources committee  substitute                                                            
is for administration of the grants.                                                                                            
                                                                                                                                
Mr. Easton affirmed that is correct.                                                                                            
                                                                                                                                
AT EASE 10:20 AM / 10:24 AM                                                                                                     
                                                                                                                                
Co-Chair Kelly  requested Senator Therriault to further  analyze the                                                            
differences  between the two-committee  substitutes. Co-Chair  Kelly                                                            
noted the bill would be held in Committee at this hearing.                                                                      
                                                                                                                                
Senator  Wilken  disclosed  he  is a  minority  shareholder  in  the                                                            
Fairbanks Sewer & Water utility company.                                                                                        
                                                                                                                                
Senator Wilken  commented that the sale of the Fairbanks  North Star                                                            
Borough's  water and  wastewater  utility  to a private  company  is                                                            
reflective  of a new  trend in the  industry.  He continued  that as                                                            
this trend continues, other changes in regulations might occur.                                                                 
                                                                                                                                
Senator  Wilken  contended  that  the passage  of  this  bill  would                                                            
benefit the ratepayers, not the shareholders of a utility.                                                                      
                                                                                                                                
Mr.  Abbott reiterated  there  is no  rate of  return  or profit  on                                                            
improvements funded by contributed capital.                                                                                     
                                                                                                                                
Senator Wilken  characterized contributed capital  "as a transparent                                                            
asset," for  it could not be reflected  in the sale price  nor could                                                            
the prospective buyer profit from it.                                                                                           
                                                                                                                                
Mr. Abbott agreed with Senator Wilken's comments.                                                                               
                                                                                                                                
Senator Ward asked if the  private business group that purchased the                                                            
Fairbanks' utility knew it was ineligible for the State grants.                                                                 
                                                                                                                                
Senator  Wilken responded  that  being  ineligible  for these  State                                                            
grants was  a concern of the new owners  of the Fairbanks'  utility;                                                            
however they  felt they could operate  the utility more efficiently                                                             
with or without those funds.                                                                                                    
                                                                                                                                
Senator  Green asked  if  the additional  grant  applicants  allowed                                                            
through  the   Senate  Resources   committee  substitute   would  be                                                            
considered at the same level as the original pool of applicants.                                                                
                                                                                                                                
Mr. Easton  responded  that all  applicants  would be  added to  the                                                            
grant  pool; however,  the  new applicants  would  be  at a  "slight                                                            
disadvantage"  as the current grant system prioritizes  by assigning                                                            
points  to  projects that  are  already  underway  or in  stages  of                                                            
development.                                                                                                                    
                                                                                                                                
Senator Green  asked about incentives  to utility systems  to expand                                                            
into new service areas.                                                                                                         
                                                                                                                                
Mr. Easton  responded that  at some point  it would be important  to                                                            
clarify "whether  these grants would  be available to developers  to                                                            
be used as part of constructing a new development."                                                                             
                                                                                                                                
Senator Green  voiced that any expansion  in the number of  eligible                                                            
participants would affect the grant "pool."                                                                                     
                                                                                                                                
Senator  Austerman asked  if the RCA  is involved  in the sale  of a                                                            
utility  and its sale  price, or  if involvement  is limited  to the                                                            
rate structure.                                                                                                                 
                                                                                                                                
Mr. Abbott  responded  that the  RCA is  involved in  a sale to  the                                                            
extent of determining  if the sale price is "reasonable"  and within                                                            
the ability of the utility  to recover the purchase price from rates                                                            
levied  and continue to  be viable.  He contended  the RCA does  not                                                            
intend to get  too involved in ownership transfers  as "it is a sale                                                            
between two consenting  parties, and as long as the purchasing party                                                            
understands what  they could base their rate structure  on," the RCA                                                            
is satisfied.                                                                                                                   
                                                                                                                                
Co-Chair  Kelly asserted  this bill  would be held  in Committee  to                                                            
afford the sponsor additional time to address concerns.                                                                         
                                                                                                                                
Co-Chair Donley voiced  support for the State to investigate avenues                                                            
to enable this program  to be self-sustaining; perhaps using program                                                            
receipts to recoup costs associated with the program.                                                                           
                                                                                                                                
The bill was HELD in Committee.                                                                                                 
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 319(RES)                                                                                            
     "An Act relating to shallow natural gas leasing; and providing                                                             
     for an effective date."                                                                                                    
                                                                                                                                
                                                                                                                                
[This bill was heard earlier in the meeting]                                                                                    
                                                                                                                                
AT EASE 10:33 AM / 10:34 AM                                                                                                     
                                                                                                                                
Amendment #1:  This amendment deletes "field subject  to lease under                                                            
AS 38.05.177"  and inserts "field, if a part of the  field is within                                                            
3,000 feet of  the surface" on page 4, lines 26-27  and page 5, line                                                            
26.                                                                                                                             
                                                                                                                                
Senator Wilken offered a motion to adopt Amendment #1.                                                                          
                                                                                                                                
Co-Chair Kelly objected for discussion.                                                                                         
                                                                                                                                
Senator  Torgerson   explained  that   Amendment  #1  addresses   an                                                            
oversight  in the bill that  limits producing  gas to "lands  leased                                                            
from  the state."  He stated  that the  adoption  of this  amendment                                                            
would make the language consistent throughout the bill.                                                                         
                                                                                                                                
Co-Chair Kelly withdrew the objection.                                                                                          
                                                                                                                                
There being no objection, Amendment #1 was ADOPTED.                                                                             
                                                                                                                                
Senator Leman  moved "to report the committee substitute  for Senate                                                            
Bill 319 Finance from Committee  with individual recommendations and                                                            
accompanying fiscal note."                                                                                                      
                                                                                                                                
There  being  no  objection,  CS SB  319  (FIN)  was  REPORTED  from                                                            
Committee  with  a new  zero fiscal  note,  dated 3/22/02  from  the                                                            
Department of Natural Resources.                                                                                                
                                                                                                                                
AT EASE 10:36 AM / 10:44 AM                                                                                                     
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 111(TRA)                                                                                            
     "An   Act  relating   to  the  issuance   of  certificates   of                                                            
     participation to finance  deferred maintenance and construction                                                            
     projects  for certain public  harbor facilities; giving  notice                                                            
     of  and  approving   the  entry  into,  and  the   issuance  of                                                            
     certificates  of participation in, lease- financing  agreements                                                            
     for  those   public  harbor  facility  projects;   repealing  a                                                            
     provision  relating   to the  financing   of  construction  and                                                            
     renovation  of facilities  for certain  ports and harbors;  and                                                            
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
SENATOR  ROBIN  TAYLOR,  sponsor  of the  bill,  explained  this  is                                                            
"primarily  a bond package bill" to  fund construction and  facility                                                            
upgrade projects  in municipal ports  and harbors the Department  of                                                            
Transportation  and Public Facilities has identified.  He stated the                                                            
facilities' needs,  according to engineering surveys  and Department                                                            
estimates, amount to $44,521,500.                                                                                               
                                                                                                                                
Senator Taylor  stressed that the  goal of upgrading the  harbors in                                                            
such places as Sitka, Petersburg,  Valdez and other ports throughout                                                            
the  State,  is  to enable  the  State  "to  turn  over  all  future                                                            
maintenance responsibilities  and ownership of these  harbors to the                                                            
individual  communities."  He asserted  that the  investment of  the                                                            
State's capital now would reduce future maintenance requests.                                                                   
                                                                                                                                
Co-Chair Kelly  asked Senator Taylor to explain the  Certificates of                                                            
Participation process.                                                                                                          
                                                                                                                                
Senator  Taylor   explained  that   by  issuing  a  Certificate   of                                                            
Participation  (COP), the  State of Alaska  guarantees the  funding;                                                            
however,  the security is  found within the  project itself  and the                                                            
project, in essence,  is owned by the certificate  holder during the                                                            
time the project is being paid off.                                                                                             
                                                                                                                                
Senator  Taylor clarified  this is  the current  funding  mechanism,                                                            
however,  announced he would  prefer the  use of general  obligation                                                            
(GO) bonds with  the decision made by Alaska's voters  as to whether                                                            
these are the projects  to fund. He stated the bill is crafted using                                                            
the COP  funding because  this is the process  considered the  prior                                                            
fiscal year.                                                                                                                    
                                                                                                                                
Senator Green  noted the backup material indicates  the City of Nome                                                            
is in need  of additional  funding for capital  improvements  to its                                                            
dock; however,  she understood that the City of Nome  owns the dock.                                                            
                                                                                                                                
Senator Taylor corrected that the State owns the dock in Nome.                                                                  
                                                                                                                                
Senator Green  referred the Committee  to page 1,Section  1, line 10                                                            
of the bill that indicates both Nome and Adak own their docks.                                                                  
                                                                                                                                
Senator  Taylor voiced  that the Nome  harbor and  dock project  was                                                            
fully  funded  and  deleted  from  the  most   recent  project  list                                                            
identified by the Department.                                                                                                   
                                                                                                                                
Co-Chair Kelly  informed the Committee that the list  [copy on file]                                                            
is in need of being updated.                                                                                                    
                                                                                                                                
Senator Taylor  noted there was a unique problem in  the Adak harbor                                                            
because that harbor  was conveyed to the Adak Native  Corporation by                                                            
the federal  government, however,  a funding mechanism was  found to                                                            
rebuild their small boat harbor.                                                                                                
                                                                                                                                
LOREN GERHARD, Chair, Juneau  Docks and Harbors Board, and Executive                                                            
Director, Southeast  Conference, testified  in support of  this bill                                                            
as many Southeast Conference  community members' harbors are in need                                                            
of repair.  He voiced  appreciation  for the  Legislature's role  in                                                            
completing  harbor improvements in  such places as Ketchikan,  Sitka                                                            
and Craig.  He informed  the Committee  that  many communities  "are                                                            
hard-pressed"   to  find  funds  to  allocate  to  harbor   deferred                                                            
maintenance. He  stressed that harbors are an integral  component of                                                            
a communities'  economy as they generate  significant commerce  from                                                            
such things  as commercial fishing,  sport fishing, and tourism.  He                                                            
noted  that  once  the improvements  allowed  under  this  bill  are                                                            
completed,  the transfer  of  the dock  systems to  the communities                                                             
"would  remove  the responsibility  to  the  State and  would  allow                                                            
communities  to establish  priorities"  for  docks  and harbors.  On                                                            
behalf of the  Southeast Conference members, he urged  the Committee                                                            
to approve this bill.                                                                                                           
                                                                                                                                
Senator  Austerman  noted  this  bill  reflects  an  approximate  $7                                                            
million allocation  for Juneau and requested clarification  that the                                                            
responsibility  for all  of Juneau's  harbors  would be transferred                                                             
from the State of Alaska to the City and Borough of Juneau.                                                                     
                                                                                                                                
Mr. Gerhard responded that is correct.                                                                                          
                                                                                                                                
Senator Austerman  asked if the list  of City and Borough  of Juneau                                                            
harbors included in the  bill encompasses all of the city's harbors.                                                            
                                                                                                                                
Mr. Gerhard replied that the list is complete.                                                                                  
                                                                                                                                
BUDD SIMPSON,  citizen of Juneau,  member, Juneau Docks and  Harbors                                                            
Board,   and  Chair,  Juneau   Docks  and   Harbors  Board   Capital                                                            
Improvement Projects Committee,  noted that Juneau's harbors, all of                                                            
which are owned  by the State, have  not received any State  funding                                                            
since  1989 and  are  "in dire  need" of  deferred  maintenance.  He                                                            
commented that the City  has funded some harbor maintenance projects                                                            
through local users' fees.                                                                                                      
                                                                                                                                
BRAD  PIERCE,  Senior Economist,   Office of  Management  &  Budget,                                                            
Office of the  Governor, stated this  bill is drafted as  a COP that                                                            
"is  essentially  a  revenue  bond"  using  marine  motor  fuel  tax                                                            
receipts  of  approximately  $6.1  million. He  explained  that  the                                                            
fiscal note for  all the projects is expected to total  $45 million.                                                            
                                                                                                                                
Mr. Pierce  shared that  the Administration  views  this as a  "user                                                            
pay" scenario, which they  advocate to be the funding source instead                                                            
of a GO  bond. He characterized  the harbors  and docks as  valuable                                                            
assets that pay for themselves  through such things as moorage fees.                                                            
He  furthered  that  the  user-pay  principle  established  in  this                                                            
situation could  set "an important  precedent to identify  this fund                                                            
source and use it to pay  for these bonds, where we wouldn't have to                                                            
use our GO capacity for  this." He voiced the possibility that these                                                            
user fees could  also be used in the future to fund  other projects.                                                            
He summarized that the  Administration "is very much in favor of the                                                            
revenue bond approach," specified in the drafting of this bill.                                                                 
                                                                                                                                
Mr. Pierce  conveyed that the Governor  supports using GO  bonds for                                                            
such things as school construction.                                                                                             
                                                                                                                                
Senator Green  asked how  the Marine Fuel  Tax revenue is  currently                                                            
used.                                                                                                                           
                                                                                                                                
Mr. Pierce responded, "there  are two segregated accounts within the                                                            
general  fund:" one  consists of  revenue generated  from a  Highway                                                            
Motor Fuel  Tax and  the other from  the Marine  Motor Fuel  Tax. He                                                            
commented  that   both  accounts  are  specifically   identified  in                                                            
statute.                                                                                                                        
                                                                                                                                
Senator  Green asked  if there is  a provision  that would  prohibit                                                            
these  taxes from  being specified  as  a funding  source for  these                                                            
projects.                                                                                                                       
                                                                                                                                
Mr. Pierce stated these taxes could be used for this purpose.                                                                   
                                                                                                                                
Senator Green  asked if the Marine Fuel Tax is in  effect Statewide.                                                            
                                                                                                                                
Mr. Pierce  responded users in coastal  communities and other  areas                                                            
of the state where boats are used pay the tax.                                                                                  
                                                                                                                                
Senator Green  voiced that some users  do not have ports  or harbors                                                            
in their area.                                                                                                                  
                                                                                                                                
Mr. Pierce concurred.                                                                                                           
                                                                                                                                
GOVERNOR  BILL   SHEFFIELD,  Representative,   Port  of   Anchorage,                                                            
testified  offnet from Anchorage  to notify  the Committee  that the                                                            
Port of  Anchorage is undergoing  a six million  dollar FY  02 State                                                            
Capital Budget  appropriation upgrade project in conjunction  with a                                                            
$160 million  expansion and  rehabilitation  project. He related  to                                                            
the Committee  that the Port  of Anchorage  is a regional port  that                                                            
serves  80 percent  of the State  of Alaska  and 90  percent of  the                                                            
people of the State. He  conveyed that the Port's business increases                                                            
two percent a year and  in twenty years the business volume would be                                                            
double  its current  level. He  stressed  that the  demands of  this                                                            
growth applies  pressure for continuing expansion  and improvements.                                                            
He conveyed  the  need for  continuing  financial  support from  the                                                            
State for infrastructure  improvements to maintain efficiency and to                                                            
ensure reasonable freight rates.                                                                                                
                                                                                                                                
Governor  Sheffield  shared  that  upon completion  of  the  current                                                            
projects,  the  Port of  Anchorage  would  be 51  percent  federally                                                            
financed  with the remainder  of funding  contributed by the  State,                                                            
the Municipality  of Anchorage, and other minor funding  mechanisms.                                                            
He urged the  inclusion of the Port  of Anchorage in this  bond bill                                                            
and  explained how  this  bill's proposed  funding  allotment  would                                                            
coordinate  with  other funding  sources  in financing  future  Port                                                            
projects.                                                                                                                       
                                                                                                                                
PAUL ANDERSON,  Mayor  Pro Tem,  City of Petersburg,  testified  via                                                            
teleconference  from Petersburg, in support of the  updated monetary                                                            
numbers reflected  in the bill as  Petersburg's harbors are  old and                                                            
in need of upgrades.                                                                                                            
                                                                                                                                
                                                                                                                                
SFC 02 # 43, Side A 11:06 AM                                                                                                    
                                                                                                                                
                                                                                                                                
GREG  MEISSNER,   Member,  Wrangell  Harbor  Board,   testified  via                                                            
teleconference from Wrangell to voice support for this bill.                                                                    
                                                                                                                                
JAMES  STOUGH,   Member,  Wrangell   City  Council,  testified   via                                                            
teleconference from Wrangell, to voice support for this bill.                                                                   
                                                                                                                                
DAN  HICKMAN,  Member,   Petersburg  Harbor  Board,   testified  via                                                            
teleconference from Petersburg  in support of the bill. He asked the                                                            
Committee to move this  bill forward, and indicated that the City of                                                            
Petersburg is looking forward  to assuming ownership of the harbors.                                                            
                                                                                                                                
Co-Chair Donley  commented that the  Administration does  not appear                                                            
to realize the  importance of the Port of Anchorage  to the Railbelt                                                            
and Bush Alaska. He stated  that the efficiency of the Port directly                                                            
impacts  the  rates  that  a vast  majority  of  consumers  pay  for                                                            
groceries and other goods  that enter the State through the Port. He                                                            
stated  that the  Legislature  should  recognize  that  the Port  of                                                            
Anchorage and the Anchorage  and Fairbanks airports are systems that                                                            
affect a lot of people and areas.                                                                                               
                                                                                                                                
The bill was ordered HELD in Committee.                                                                                         
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Pete Kelly adjourned the meeting at 11:09 AM.                                                                          

Document Name Date/Time Subjects